“Great things are not accomplished by those who yield to trends and fads and popular opinion.”– Jack Kerouac
I have an intellectual weakness for contrarian investing. Buy quality when it is unpopular and prices are cheap. Sell it when the crowds have finally caught on and prices are zooming.
This is the sort of moneymaking philosophy that appeals to a certain snobbish tendency in me: that most investors, the lumpeninvestoriat (as Bill Bonner calls them in his Daily Reckoning e-letter) are financial lemmings who don’t have the sense to recognize value when they see it. Instead, they buy on hype and frenzy and contribute to bubbles that inflate and burst, as bubbles must do, and are justly punished for their folly.
Or, to paraphrase Mick Jagger: You can’t always get what you want as an investor. But if you live long enough, you will get what you deserve.
That’s the way I like to think about the financial markets. But when I look at what I have actually done as a businessman and investor, I have to admit that most of my wealth has been accumulated by doing almost exactly the opposite. Of the considerable money I have made in my lifetime, the great majority of it has come from investing in trends. Not foolishly running behind the herd (I’d like to think), but shrewdly going with the flow.
I once heard it said that there is a rule of probability which states that there is a seven-to-one chance that any trend that exists today will continue to be in place tomorrow. That dovetails with my experience as a builder of businesses. Yes, trends change. But most of the time, they go in exactly the same direction that they were going in yesterday.
Betting against the trend can provide rich emotional rewards, but it’s generally bad for the pocketbook. If kids today like low-cut jeans so their boxer shorts can show, chances are they will like them tomorrow. Sometime in the future, higher-cut jeans and cotton briefs will be back in vogue, but I’m not going to invest in a business that is starting to manufacture them now.
If you look at the history of the stock market over the past 25 years (since I’ve been more or less involved with it), you will notice that there have been about a half-dozen major trends. The pattern of investing during those trends is pretty well documented: As one trend gradually or somewhat suddenly comes to a halt, another trend almost immediately takes up movement. Those who get in on the new trend at the beginning do very well, but those that get in toward the end often get killed.
The secret to becoming wealthy as a trend investor is timing. And for every trend, there are at least a half-dozen investment theories that aim to profit from it. As a consultant to the financial publishing industry, I’ve been studying those theories for almost three decades – and if there is one thing I’ve learned about them, it is this: There are all sorts of investment strategies that work …but very few – if any – that work consistently.
Which brings me to Christoph Amberger and his exciting new book Hot Trading Secrets.
There is an inside secret in the investment advisory business that goes something like this: If the investor likes the shade of your glasses, he won’t care that the numbers he’s looking at don’t add up to much. Put differently: If your reader likes your political and economic worldview, he will stay with you when your track record for recommending winning stocks is in the toilet.
As someone who has watched the investment advice business for many years, I believe that perspective is largely true. And there’s a good reason for it. Most investors – most people – are not all that concerned about the return on investment they get. They feel that they should be concerned. And ROI can, indeed, affect their purchasing power. But when you consider all the uncertainties that are incorporated in the world of investing … and after you’ve had the experience of seeing your winning streak turn bad on you several times … you gradually start to pay attention to other things.
Those other things are often more philosophical in nature.
Why, for example, is there such a variance between the average income of a new family in the United States and the average cost of a start-up home? If the world were a reasonable place, you’d think there would be a clear and calculable connection.
Or, given the fact that most new wealth in America is created by small companies, shouldn’t investors who put their money in small-cap stocks do better than the rest of the investing public?
Or, considering the fact that God created the world and it’s meant to have some sublime order (though we may not know what that order is), shouldn’t good investors – that is, investors who put their faith in solid, value-producing companies – be rewarded in the end when the universe rights itself?
Such speculations are endlessly entertaining for those investors who have (subconsciously or wittingly) given up the goal of attaining wealth through stocks. (Or even, in many cases, the much less ambitious objective of beating market indexes.) But Mr. Amberger is not content to merely entertain. A compelling theoretician and amusing lampooner, he has spent 15 years as the publisher of the Taipan division of Agora Publishing’s financial newsletter empire – excoriating fools, lambasting intelligent dimwits, and poking fun at pundits whose theories are always richer than those who follow their recommendations.
That said, he has never given up the goal of finding investment theories that actually work. In fact, he’s been so dedicated to what
seems to most industry insiders to be an impossible task that he has practically invented a process of hiring, training, and then testing young people who have a talent for this game. In the process, he has developed an enviable record of gurus and investment newsletters with impressive performances.
A few years ago, I had a conversation with Christoph about his success. I told him I was impressed with the individual results of individual writers who had matured their game under his direction – but I still wasn’t convinced that any one of them could sustain their records indefinitely.
“And that’s why I start them young,” he explained. “Because I want them young enough to change as the market changes. To correct and refine and, if necessary, entirely reinvent their systems in order to get those good returns.”
I wondered aloud whether that would be possible.
“Look at it this way,” he said. “During every market trend, isn’t there always one predominant investment theory that is working?”
“Yes,” I said. “But that’s exactly my point. As the market changes, so do the investment systems. What worked 10 years ago doesn’t work today. And what’s working today won’t be working 10 years from now.”
“In fact, you are making my point,” he said. “My program is meant to take advantage of that one irrefutable fact about
the stock market: that it is endlessly changing. In an endlessly changing environment, only a fool or zealot would stick to a single, unchanging system for dealing with it.
“My system is dynamic. It’s a dynamic market theory.”
“You should write a book on that idea,” I told him.
And so he did. And that’s why I’m excited to introduce you to Hot Trading Secrets. In this book, Christoph not only lays out the analytical approaches of his ambitious young team of editors and analysts, but also provides his big-picture view of how he sees the next five years unfolding in the global markets. It’s no pretty picture. (And Christoph has an uncanny track record of being right in his analyses and forecasts.)
But despite the looming crisis in the financial markets, this book has a very optimistic message. By explaining how his analysts harness each move in the markets for fun and profits, he provides the tools needed to meet this crisis head-on – enabling you to come out not only wiser, but potentially vastly richer.
[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]